Debt Settlement is when both the debtor and creditor agree upon a reduced amount owed and payments are made on the new balance.
There are two different ways to a Debt Settlement:
1- Consumer Proposal
2- Debt Management Program
A Consumer Proposal is a legal process working with an Insolvency Trustee to reduce the amount owed and a payment plan. A consumer proposal also provides immediate stoppage of creditor actions against the debtor like collection calls, court actions and garnishments. It includes all unsecured creditors including CRA debt.
A Debt Management Program helps the debtor negotiate a payment plan with the creditors for the full amount that is owed. Unlike a Consumer Proposal, there is no reduction in the amount owed. Payments are then made to the debt management program and they take a fee and send the rest of the money to the creditors.
Both a Consumer Proposal and a Debt Management Program will stay on your credit report as a settlement program for 3 years after your final payment.